Thanks to our friends at Catholic Investment Services for hosting a terrific panel this past week on the topic of governance and investment performance! https://lnkd.in/ekiQass #governance #catholic #esg #endowments #Baird #foundations #investing #Marquette #Catholicinvestmentservices
Ethics, Earnings, ERISA and the Biden Administration (Albert Feuer)
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3773879
Abstract
Ethical-factor investing shall be defined as using ethics, such as an enterprise’s policies regarding social/economic/health/environmental justice, sustainability, climate change, or corporate governance, as a factor to determine whether to acquire, dispose of, or how to exercise ownership rights in an equity or debt interest in a business enterprise.
Ethical-factor investing includes, but is not limited to the ESG, sustainable, socially responsible, impact, and faith-based investing. Ethical-factor investing may. but need not, be intended to enhance the investor’s financial performance. Ethical-factor investing also may, but need not, be intended to enhance an enterprise’s ethical behavior, i.e., to be socially beneficial.
The Trump administration discouraged ethical-factor investing. Nevertheless, such investing is becoming increasingly popular among Americans, American mutual funds, and American retirement plans.
The article introduces the current types of ethical investing, their history, their financial and ethical performance, and their pre-Biblical progenitors. All those issues are discussed more extensively in a longer referenced article.
This article suggests how the Biden Administration may encourage ethical-factor investing by ERISA retirement plan fiduciaries. This may be done with revised ERISA regulations and other interpretative documents. No ERISA amendments would be needed. ERISA permits such investing if it does not adversely affect the expected financial performance of such plans’ investment portfolios or investment choices. Finally, such plans investors, including plan participants and beneficiaries, may thereby generate their preferred benefits for society. Such benefits are, like desired financial benefits, most likely to be achieved if such investors are explicit about their preferred benefits and they regularly monitor the performance of their investments.
SAGE “Perspectives on the Future” Conference 2019
Talking asset owner governance, the retirement savings crisis, impact investing and financial literacy on the SAGE podcast.
DOES PUBLIC PENSION BOARD COMPOSITION IMPACT RETURNS? (Boston College – Center for Retirement Research)
https://crr.bc.edu/wp-content/uploads/2019/07/SLP67.pdf
U.S. state and local pension funds manage over $4 trillion in retirement assets for 20 million active and retired plan members. Given the significance of these funds, proper oversight is vitally important to government officials, plan participants, and taxpayers alike. The challenges to effective pension fund governance have been well documented, and significant research has demonstrated that the characteristics of pension boards matter. This brief summarizes public pension fund governance, discusses key aspects of public pension boards, and presents additional evidence that a well-designed board relates to better plan outcomes.
The Trustee Governance Guide is now out!
Our new book, The Trustee Governance Guide: The Five Imperatives of 21st Century Investing is now available!
- Focuses on both structural and process factors of governance
- Covers related investment topics in each chapter, including fiduciary duty, financial literacy, asset allocation, and socially responsible and impact investing
- Draws from the annual U.S. Public Pension Governance Survey and other leading industry and academic research
- Includes special “practitioner sections” in each chapter geared to the more technical reader
More than 80% of the financial assets in the United States fall under the purview of a trustee. That’s a big responsibility for an estimated 1% (around 1.5 million people) of the U.S. working population charged with overseeing investments for millions and millions of beneficiaries, public sector, and non-profit organizations. In a world proliferated by investment products, increasingly dominated by indexes, faced—particularly in the pension world—with increasing liabilities, more regulation, and a growing number of social and sustainability objectives, what’s a trustee to do?
The Trustee Governance Guide is here to help guide today’s board trustee through the brave new world of 21st century investing. The book focuses on the critical aspects of the Five Imperatives: Governance, Knowledge, Diversification, Discipline, and Impact. Based on more than a decade of research, practice, and discussions with many key decision makers and influencers across the industry, this book addresses the many topics related to better governance, greater mission-driven financial performance, and impact. The questions the book addresses include:
- What is good governance, how do we know it when we see it, and why does it matter?·
- How much knowledge is necessary to be a competent board member?
- How big should my endowment be?
- What are the key elements of a diversified portfolio?
- How much does cost matter?
- What’s the difference between socially responsible and ESG investing?
- Can I focus on sustainability and still be a good fiduciary?
This book provides a way for boards to improve and benchmark their own governance performance alongside their peers, and uniquely covers related investment topics in each chapter.
As Retiree Health-Care Bills Mount, Some States Have a Solution: Stop Paying (WSJ)
States across the U.S. are testing how far they can reduce health benefits for their retirees as a way of coping with mounting liabilities and balancing budgets. State and city governments increasingly began looking to cut these costs as they struggled following the 2008 financial crisis. In Detroit and Stockton, Calif., officials agreed to reduce their support for retiree health care as a way of negotiating their exits from municipal bankruptcy protection in 2014 and 2015, respectively.
Why the Longest U.S. Bull Market Has Failed to Fix the Nation’s Public Pensions (WSJ)
Maine’s public pension fund earned double-digit returns in six of the past nine years. Yet the Maine Public Employees Retirement System is still $2.9 billion short of what it needs to afford all future benefits to all retirees.
There is a simple reason why pensions are in such rough shape: The amount owed to retirees is accelerating faster than assets on hand to pay those future obligations. Liabilities of major U.S. public pensions are up 64% since 2007 while assets are up 30%, according to the most recent data from Boston College’s Center for Retirement Research.
Cities Look to Shed Ratings While Taking on More Debt (WSJ)
One-fourth of municipal borrowing is given a single grade, leaving smaller investors with less information
Municipal officials and advisers said fewer ratings help cities trim expenses and save time when they borrow money for everything from school construction to sewer repairs. Bond issuers typically pay rating firms to issue a report. But some analysts said opting for one grade from a single firm puts smaller investors at a disadvantage as less information circulates through the $3.8 trillion municipal market.
Cities and counties across the U.S. don’t have enough assets on hand to pay for all future obligations to their workers, but how deep this deficit looks depends on what those cities expect to earn on their investments. Moody’s and Fitch impose their own calculations of pension liabilities while S&P relies more on government-provided projections.